Colon v. Strawberry (In re Strawberry)

Citation: 464 B.R. 443Docket: Bankruptcy No. 10-40400-LMK; Adversary No. 11-04003-LMK

Court: United States Bankruptcy Court, N.D. Florida; January 25, 2012; Us Bankruptcy; United States Bankruptcy Court

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The Court denied the Internal Revenue Service's (IRS) Motion to Dismiss the interpleader filed by Sterling Mets, L.P. (the 'Mets'). The Mets named the IRS in the interpleader, asserting that the IRS's sovereign immunity is waived under 28 U.S.C. § 2410(a)(5). After a hearing on December 13, 2011, and subsequent briefs addressing sovereign immunity and subject matter jurisdiction, the Court confirmed its jurisdiction over the case.

The interpleader arises from the Chapter 7 Trustee’s adversary proceeding in Charisse Ann Strawberry’s bankruptcy case, where the Trustee claims that Charisse Strawberry is entitled to $800,000 from deferred compensation payments owed to Darryl Strawberry from the Mets under a Uniform Player’s Contract (UPC) established on March 12, 1985. The IRS has a prior Notice of Levy against these funds, asserting a lien for $542,572.64 due to Darryl Strawberry’s federal tax liabilities. 

The Mets initiated the interpleader to resolve competing claims from the Trustee, the IRS, and Darryl Strawberry, aiming to determine the rightful recipients of the deferred compensation and to protect themselves from future liabilities. Despite an initial agreement between the Trustee and the Mets conceding the IRS's superior claim, the IRS contested the Court's jurisdiction, claiming that it had not waived its sovereign immunity. The Court ultimately ruled that it had jurisdiction to proceed with the interpleader under Federal Rule of Bankruptcy Procedure 7022, which allows for the joining of claimants to resolve potential double or multiple liabilities. The federal interpleader statute, 28 U.S.C. § 2361, supports this process by restraining claimants from pursuing parallel claims until the Court resolves the matter.

Federal courts cannot adjudicate disputes under the interpleader statute until confirming subject matter jurisdiction. The IRS argues that the United States has not waived sovereign immunity for interpleader actions, thus denying jurisdiction. It is established that one can only sue the United States with explicit Congressional consent. The general interpleader statute does not waive sovereign immunity, and 28 U.S.C. 2410(a)(5) only permits waivers concerning property or funds with a federal lien. The IRS contends that this statute is inapplicable for three reasons: it allows interpleader actions only in state or federal district courts—not bankruptcy court; there is no legitimate threat of multiple liability due to protection under 26 U.S.C. 6332(e); and the action is time-barred under 28 U.S.C. 2401(a) which mandates filing within six years of the cause of action.

Conversely, the Mets argue that their counterclaim for interpleader is justified as they face competing claims and lack interest in the disputed funds. Jurisdiction is defined by statute, specifically 28 U.S.C. 1334(b), which grants district courts jurisdiction over all civil proceedings related to bankruptcy cases. Bankruptcy courts have jurisdiction over matters "related to" bankruptcy, where outcomes could affect the bankruptcy estate. If the Trustee is found entitled to the funds, they would become part of the estate for creditor distribution. Hence, the interpleader action is relevant to the bankruptcy case, affirming the court's jurisdiction.

The IRS argues for the dismissal of the interpleader action on the grounds that the Mets are not at risk for multiple liabilities, citing 26 U.S.C. § 6332(e) as a protective measure for those surrendering property subject to a levy. However, case law indicates that § 6332(e) does not preclude the initiation of an interpleader action. Courts have affirmed that interpleader serves to allow a disinterested party to withdraw while allowing the actual interested parties to resolve their claims. The Mets filed the interpleader in good faith to ensure proper distribution of disputed funds and to avoid the risks of multiple litigation. The IRS's reliance on § 6332(e) to dismiss the action is flawed since this protection is not absolute and does not negate the Mets' right to interplead based on good faith. Furthermore, the IRS's argument that the interpleader is time-barred under 28 U.S.C. § 2401(a) is misplaced, as the Mets are not challenging the validity of the IRS levy, which they acknowledge holds priority over any other claims. The stipulated agreement confirms that the IRS's levy is superior, rendering the timing of the initial IRS service irrelevant to the interpleader's validity.

The IRS argues that the Anti-Injunction Act (26 U.S.C. § 7421) bars the interpleader action because it prohibits lawsuits that restrain tax assessment or collection. However, the Mets are not attempting to restrain tax activities or litigate the IRS's claims, as established in First Interstate, which ruled that such an interpleader does not obstruct tax collection efforts. The court has already mandated the Mets to pay the IRS until Darryl Strawberry’s tax liabilities are fully settled, reinforcing that the interpleader does not hinder the IRS’s tax collection capabilities, making the IRS's reliance on the Anti-Injunction Act misplaced.

The IRS further claims that once a third party is notified of an internal revenue levy, it must surrender the related property. The Mets received notice of such a levy, and the IRS insists they must surrender deferred compensation funds, interpreting the interpleader as an attempt to evade this duty. However, the district court in Kurland stated that if the plaintiff genuinely fears competing claims to the funds, they should not be liable for not surrendering them, as interpleader is intended to prevent multiple liability. The IRS disputes this interpretation, citing a Supreme Court case emphasizing the government's need to secure revenue swiftly, yet the court finds the Kurland decision valid. It acknowledges the balance between tax collection urgency and the interpleader's purpose to alleviate potential multiple litigations, affirming that interpleader is a liberally applied remedial tool.

The Court concludes that it has jurisdiction over the case and that 28 U.S.C. § 2410 does waive the United States’ sovereign immunity in this interpleader action. Prior to the 1966 amendment of the statute, there was uncertainty about naming the United States as a defendant in interpleader cases, but the amendment clarified this issue. The parties involved acknowledged that the IRS has a first priority levy, and dismissing the interpleader on its merits would not prejudice the United States. The Mets initiated the interpleader in good faith to address competing claims to funds as a disinterested stakeholder and to prevent further actions against them concerning these funds. The Court affirms its subject matter jurisdiction to resolve the dispute and denies the IRS's Motion to Dismiss the Amended Crossclaim for Interpleader. The Court also aligns with previous rulings that recognize the existence of a levy as indicative of a lien on the delinquent taxpayer's property, countering other cases that limit the applicability of § 2410 in such contexts.